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- 8 reasons to consider getting a credit card
- 3 reasons why you shouldn’t apply for a credit card
- What are the advantages and disadvantages of a credit card?
- Do I need a credit card to build up a credit history?
- Do I need a credit card to get a mortgage?
- Can I just use a debit card instead of a credit card?
- Am I eligible for a credit card?
- What are the alternatives to a credit card?
There are several good reasons to get a credit card – and one very important reason not to. While it’s true that a credit card can give you some extra financial flexibility, and in some cases could save you money, if you don’t manage it well there’s a risk of ending up with debt that you can’t afford to repay.
Of course, there are situations where a credit card can be useful, but that doesn’t mean you necessarily ‘need’ one, particularly if you’re already stretched financially or have any doubts about keeping up with the repayments. Read on to find out what to consider before you apply for a credit card.
» MORE: Best credit cards in the UK
8 reasons to consider getting a credit card
There are a few scenarios where different types of credit cards could prove useful, including:
1. To spread the cost of purchases
When faced with a large or unexpected expense, a 0% purchase credit card can work like an interest-free loan as you won’t need to pay any interest for a set period of time. This can be a convenient and cost-effective way to borrow, provided you can repay the balance before the 0% period ends, at which point you’re likely to be hit with significantly higher interest rates.
Don’t forget even with a 0% purchase card you will still need to make a minimum payment each month or you risk damaging your credit score and losing your 0% deal.
» COMPARE: 0% purchase credit cards
2. For cheap borrowing
You won’t usually be charged interest if your balance is fully paid off by the due date each month. As a result, it’s possible to borrow on a credit card and never pay any interest for doing so (the exception might be if you make cash withdrawals).
In addition, you can spend using a 0% purchase credit card and, if you’re eligible for a promotional offer, you may not have to pay any interest on your purchases for a set period of time – which in some cases can be well over a year.
3. For convenience and emergencies
When you need to buy or pay for something now but payday is still a few weeks away a credit card could bridge that gap. In particular, a credit card could offer a convenient way of paying emergency bills – car repairs, a broken boiler, or a new fridge – if you haven’t got the cash to pay upfront. If you’re eligible for a 0% purchase credit card, you may not even need to pay any interest, making it a cost-effective way to spread the cost over a few months.
If you can afford to, it’s still worth thinking about saving for an emergency fund so you can pay for these unexpected costs, without needing to borrow.
4. To transfer expensive debt via a balance transfer
If you already have credit card debt you’re struggling to pay off, switching what you owe to a 0% balance transfer card may be worthwhile. That’s because balance transfer cards work by giving you a set amount of time to pay off the debt without being charged any more interest. In some cases, you can get interest-free terms that stretch for two years or more.
These credit cards can also be used to consolidate what you owe across a number of cards, so your debt is easier to manage and you have only one payment to make.
A fee is usually charged for each balance you transfer and, crucially, you should try to clear your balance, or look to switch again, before the interest-free, or low-interest, period ends.
When consolidating your debts it’s worth remembering that it could take you longer to pay off the debt and that you may end up paying more interest if you don’t pay off the card before the low rate ends.
» COMPARE: 0% balance transfer cards
5. To get protection on purchases
When you buy something with your credit card for more than £100 but less than £30,000, your purchase will be protected by Section 75 of the Consumer Credit Act, which means you can put in a claim if your order never arrives, turns out to be faulty, or if the company you are dealing with goes into administration.
Even if your purchase costs too much or too little to qualify for Section 75 protection, you may still get similar protection with ‘chargeback’. This is a scheme that card operators American Express, MasterCard and Visa voluntarily offer if you pay for something with one of their credit or debit cards and it’s faulty or never arrives. However, unlike Section 75, chargeback is not a legal right.
6. To boost your credit score
If your credit score needs some improvement, or you have little credit history at all, taking out a credit card, and using it sensibly, could help. Repaying your balance in full each month and not exceeding your credit limit both have the potential to boost your score. But miss a payment, or overspend, and your rating could easily head in the wrong direction.
Some credit cards, known as credit builder cards, are specifically designed to help you improve your credit score, and may be an option for those who aren’t eligible for other types of cards.
You can check your credit score for free with credit reference agencies like Experian and Equifax, or via platforms like ClearScore and Credit Karma. Keeping an eye on your score can help you spot any errors that need to be corrected, and take steps to improve it – which could give you better access to credit in the future.
» COMPARE: Credit cards for bad credit
7. To avoid transaction fees when spending abroad
Most credit or debit card providers apply foreign transaction charges and fees when you spend overseas, whether you’re paying with your card or withdrawing cash from an ATM. These can quickly add up over a few days, making it an expensive way to spend.
So if you’re travelling abroad, and want to use a credit or debit card while you’re away, you could consider applying for a travel credit card, which won’t charge you any additional fees for foreign transactions – and usually offers a good exchange rate.
When your holiday is over, aim to pay off your balance as soon as you can, as these cards may have a higher APR than other types of credit cards, which could quickly wipe out what you’ve saved in fees.
» COMPARE: Best credit cards
8. To earn rewards on your everyday spending
If you use a credit card regularly, think about exploring cards that reward you for your spending. With some rewards credit cards you’ll accumulate points which can be exchanged for vouchers or discounts at selected retailers. Air Miles credit cards let you swap your points for flights, upgrades and car hire.
Alternatively, you can get a cash reward when you spend using a cashback credit card. The amount you can earn usually depends on how much, and where, you spend – but don’t fall into the trap of spending just to chase the rewards on offer.
» COMPARE: Cashback credit cards
3 reasons why you shouldn’t apply for a credit card
Despite the many reasons why a credit card might seem right for you, there are also times when applying for a credit card probably won’t be the best choice. These might include:
1. If you’re struggling to stay on top of your finances
If you borrow more on your credit card than you can afford to repay each month, you can quickly run up debts you may struggle to repay. This can be a problem with any type of credit card, particularly if you find it difficult to keep your spending under control.
Ideally, you should aim to pay off your entire credit card balance each month. But at the very least, make sure the minimum repayments are easily affordable to you. Missing a payment, or paying late, can hurt your credit score, and could limit your access to credit in the future.
Bear in mind that paying the minimum amount every month won’t clear the debt, so you’ll also need to think about how you intend to pay it all off. If you’re making use of a 0% purchase or balance transfer period, you’ll also need to plan how you intend to pay everything back before interest is charged.
» MORE: How to pay off credit card debt
2. If you’ve recently applied for credit
Every time you apply for credit it’s recorded on your credit report. While being rejected for a credit card won’t hurt your credit score in itself, if a lender sees you’ve made a lot of credit applications in quick succession they might worry about your financial situation and question the affordability of a new credit card. As a result, your application is more likely to be rejected.
Remember to check your credit score and use the provider’s eligibility tool before you apply as this will give you an idea of the cards you are most likely to be accepted for, which reduces the risk of an unsuccessful application.
» MORE: Can you apply for a credit card with a bad credit history?
3. If you want to withdraw cash
Every time you make a cash withdrawal with a credit card you’ll pay a fee, and you will often pay a higher rate of interest – usually from the day you make the withdrawal. This is known as a cash advance, and doing this can also affect your credit score as lenders may interpret it as a sign that you’re experiencing financial difficulties.
If you need to access cash, perhaps because you need to pay someone who doesn’t accept credit cards, consider a money transfer credit card instead. For a small fee you can then move money from your credit card to your bank account, where you can withdraw the cash that you need.
What are the advantages and disadvantages of a credit card?
Benefits of credit cards
There are several advantages to having a credit card, including:
- the convenience to buy now, pay back later.
- help with spreading the cost of purchases.
- the potential for interest-free borrowing.
- a useful means of covering emergency bills.
- protection for your purchases.
- the potential to boost your credit score.
- balance transfers, which can be used to lower the cost of existing debt.
- the potential for cashback and rewards.
- protection if you lose your card or you’re a victim of fraud.
Disadvantages of credit cards
But watch out for these drawbacks, which include:
- the potential to be charged high interest outside 0% periods, and if you don’t clear your balance.
- debt that can quickly grow, especially if you miss payments or pay only the minimum amount.
- the temptation to spend money that you don’t have.
- hurting your credit score by missing payments and over-borrowing.
- potentially high charges for cash withdrawals, overseas use, exceeding credit limit, and missed payments.
Do I need a credit card to build up a credit history?
Having a credit card isn’t essential for building up a credit history but it can help. Paying off your balance each month and keeping within your credit limit both demonstrate that you’re a sensible borrower and can help improve your credit score. On the other hand, missing payments and borrowing too much can negatively impact your score.
If you do want to use a credit card to build up your credit history, some lenders offer cards that are specifically designed with this purpose in mind.
» COMPARE: Credit Builder Cards
Do I need a credit card to get a mortgage?
Having a credit card is not a specific requirement for getting a mortgage. However, a properly managed credit card can boost your credit score.
Can I just use a debit card instead of a credit card?
If you have money in your bank account, you might want to consider using a debit card rather than a credit card. As long as you don’t use your overdraft, when you use a debit card you’re spending your own money so won’t incur any extra charges, such as fees and interest. You shouldn’t be charged for making cash withdrawals with a debit card either, assuming you’re not in your overdraft or using an ATM that charges you for withdrawals.
That said, there can be advantages to using a credit card over a debit card, including:
- allowing you to borrow to bridge financial gaps, perhaps until you’re paid, or when you have an unexpected expense.
- protection for your purchases through Section 75 of the Consumer Credit Act 1974.
- the potential to earn cashback and rewards, including Air Miles.
- certain credit cards which can be used overseas at no extra charge, usually giving you the best available exchange rate.
» MORE: Credit cards vs debit cards
Am I eligible for a credit card?
Generally speaking, credit card providers will look at your financial situation and your credit record before deciding whether you’re eligible for a credit card. If you have a mortgage, loans or other credit cards already, you’ll stand a better chance of getting a new card if you’ve kept up with your repayments and stayed within your borrowing limits.
Before you apply, check your credit report so that you can spot any errors, and make sure that you’re on the electoral roll. Most providers also offer an eligibility checker, so that you can see if you’re likely to qualify for the card before you apply.
If your credit standing is less than perfect, there are credit cards aimed at those with bad credit scores. These often have less generous credit limits, and interest charges may also be higher than other cards.
» COMPARE: Credit cards
What are the alternatives to a credit card?
A direct debit card might be an alternative to a credit card if you have funds available in your current account. But if you need to borrow, there are other options besides credit cards you might want to consider.
When you have a bank account, you’ll also usually have an overdraft you can dip into, and this may even be free of charge. If you need to borrow a larger amount or for a longer period of time (longer than the interest-free periods available on purchase credit cards), taking out a personal loan could be an alternative to consider.
Interest rates, charges, flexibility and how long you expect to need to borrow can all be important in determining which option is best for you.
Pre-paid credit cards can also be useful, although you will need to top these up before you use them. This means they don’t give you the option to borrow money or the protection of Section 75, but they do offer the convenience of paying with plastic. They can also be a useful budgeting tool.
» COMPARE: Personal loans
Dive even deeper
Can You Apply For A Credit Card With Bad Credit History?
How to Transfer Credit Card Balances
